Long-standing issues are making it harder to make remuneration agreements work for both sides. Stuart Pocock, Founder and Managing Partner at The Observatory International, explains.
Money may make the world go round but it can be a major source of stress. Not just in our personal lives but our professional lives too.
That’s certainly true when it comes to advertisers and agencies, where money is a long-standing source of tension. Our latest research, conducted with ISBA members, highlights grievances that have been common for a number of years.
While 57% of advertisers state that they feel agencies are transparent on costs – a substantial minority are less than comfortable. And while 65% of advertisers feel they get value for money – over a third don’t.
In a strangely British way, many even feel uncomfortable talking about money – 67% feel that too much focus on remuneration can be detrimental to agency relationships.
Perhaps that’s why, despite the fact that we do spend a lot of time talking about money – 27% of procurement respondents are devoting at least a third of their time on remuneration issues – few new innovations in payment constructs have gained traction.
This study follows a similar global survey undertaken by The Observatory International in 2018, on behalf of the World Federation of Advertisers, and highlights near identical issues and frustrations.
Over recent years there have been developments in the way that businesses are tackling remuneration. Our ISBA work found heartening evidence of a move away from labour-based fees, which can reward poorly responding agencies in precisely the same way as those who deliver exceptionally. Seventy-two percent agreed that linking remuneration to agency performance is a key requirement, which is great as long as the correct mechanisms are in place to measure this.
Nevertheless, there are also long-standing issues that could be resolved with some basic attention to detail:
- Procurement provided with ill-defined scopes of work, often as a result of busy marketers providing ‘top-line’ vague scopes. This makes agencies suspicious, particularly if they’ve been subject to capped budgets and scope-creep in the past.
- The relentless desire to get more for less, rather than putting mechanisms in place to truly measure value and which can have very negative outcomes in terms of relationship and quality of work.
- A desire to chase the latest ‘shiny’ new remuneration approach – which may not work for your organisation unless you have truly identified the ramifications and have the appropriate governance/guardrails in place.
Whilst labour-based activities still account for the highest percentage of remuneration arrangements, the findings indicate a strong desire to ensure that remuneration is linked to agency performance and businesses are increasingly looking to payment-by-results (PBR).
However, the devil is in the detail and such schemes need to be constructed to be beneficial to both parties in terms of quality of output balanced against cost, and not simply used to drive overall costs down.
In our 15 years of working with both major global corporations and UK businesses, we find that the best schemes are built around collaborative approaches. Best-in-class procurement comes from the desire and ability to genuinely manage the financial aspects of the relationship, monitoring it and discussing it with all stakeholders on a regular basis rather than simply agreeing a budget and revisiting it once or twice a year.
Engaging with stakeholders regularly lets you have a constant overview of progress, be on top of scope creep/plan-changes ahead of time and resolve issues before they become problems.
It doesn’t require a PhD in high finance to negotiate with agencies. It needs a common-sense approach combined with a genuine understanding of the workings of the advertising industry, together with close working of all stakeholders – procurement, marketing and agency alike.
Above all, there has to be a recognition that it’s not just about pushing costs down but developing a genuinely fair approach that delivers positively for all parties and helps you grow the business in the long-term.
ISBA members can download the full report here.
If you are not an ISBA member please get in touch to find out more.